FORM GEN. 160 (Rev. 6.

80)

CITY

OF LOS ANGELES
CORRESPONDENCE

INTER-DEPARTMENTAL

DATE: TO:

August 2, 2011 Honorable Members of the Ad Hoc Committee on Downtown Stadium and conv Center Renovation Gerry F. Miller / Chief Legislaf~s~;

FROM:

A1
.
\..

Miguel A. ~'J City Administrative Tmcer

iJ( ~

Pouria Abbassi I General Mana er, LACC SUBJECT: Supplemental Report Concerning the Los Angeles Convention Center and Event Center Memorandum of Understanding

SUMMARY
Motion (Perry-SmithlGarcetti, CF# 11-0023) instructed the Chief Legislative Analyst (CLA) to engage Anschutz Entertainment Group, Inc. (AEG) in formal discussions regarding its proposal to construct an event center in Downtown Los Angeles that would host a National Football League (NFL) team, concerts, and other sports and entertainment events; as part of the event center proposal, AEG would construct a new hall to replace the West Hall at the Los Angeles Convention Center (LACC) (collectively, the Project). The CLA established a negotiating team (City Team) comprised of the CLA, City Administrative Officer (CAO), City Attorney, and LACC. In addition, the Council authorized the CLA and CAO to obtain outside consultants to provide economic and fiscal analyses necessary to evaluate the Project. On July 25, 2011, the City Team released a report detailing the terms of a proposed Memorandum of Understanding (MOU) that outlines a development model ofthe Project developed by the City Team and AEG. This MOD is a non-binding framework that will guide discussions on the Definitive Agreements, the contractual documents that would implement the Project. On July 27,2011, and July 28,2011, the Ad Hoc Committee on Downtown Stadium and Convention Center Renovation held public hearings to consider the City Team report, the MOU and associated analyses. During those hearings, members of the Committee and public speakers posed a number of questions conceming the terms of the MOD. At the conclusion of those hearings, the Committee asked the City Team to provide a supplemental report that addresses the various questions raised. This supplemental report addresses the questions raised during those public hearings.

RECOMMENDATIONS That the City Council note and file this report. SUPPLEMENTAL INFORMATION

1. Please provide a breakdown of the job creation data to provide a description of thejobs that are expected to be created by classification and quality/salary. Convention, Sports & Leisure, International (CSL), the independent firm hired by the City to analyze the economic impacts of the proposed Project, reported that the Project would create 6,320 permanent jobs. Attachment A shows a detailed analysis of those jobs by industry classification. Jobs would primarily be created in the service industry, followed by food services and drinking places (e.g., restaurants), advertising, and transit and ground transportation.

2. Please respond to the letter submitted by Quentin Fleming. The City is in receipt of a letter from Quentin Fleming raising questions concerning the economic value of an NFL team and stadium. CSL has analyzed that letter, provided as Attachment B.

3. Who is doing the improvements on SR-llO? In September 2007, the City's Department of Transportation reported to Council on the improvements proposed by Caltrans to improve SR-II0 (CF 07-1916). Caltrans seeks to improve flow of Downtown traffic by adding lanes, improving the SR-II0/1-1O interchange, and making several ramp improvements. Caltrans has begun to implement this project, which includes: A lane will be added on northbound SR-IlO from 1-10 to 6th Street; The northbound 9th Street, 8th Street and Olympic Boulevard off-ramps will be widened to accommodate an additional lane; A lane will be added on southbound SR-II0 between Olympic Boulevard and 4th Street; The southbound 11th Street on-ramp will be widened to accommodate an additional lane; and The bridges at 9th Street and Olympic Boulevard will be widened.

Caltrans reports that these improvements are intended to facilitate a smoother transition between SR-I10 and I~1O. Further, it is anticipated that southbound SR-110 traffic entering from 8th Street will now remain in one lane to access eastbound 1-10, eliminating weaving across several lanes and providing improved access to the Downtown corridor. Cal trans reports that they have completed installment of median lights at the Olympic Boulevard and Ninth Street undercrossingand that the merge shoulder on the southbound SR-I10 to Page 2

eastbound 1-10 connector was widened to allow additional lanes. Further, construction of a retaining wall and widening of 11th Street off-ramp are in progress. These improvements are scheduled for completion is Spring 2013.

4. Provide information concerning increased revenue estimates that would result from a Self-Financed Project. Exhibit B in the CSL report provided as Attachment D to the City Team report of July 25, 2011, provides estimates of revenues that could be generated by the proposed Project. Some of the revenues in that analysis would likely be generated in the scenario where the City rejects the AEG proposal and instead implements an LACC expansion and renovation project on its own (City-only project). Thy key revenues that would likely remain include event revenue generated by the LACC, incremental taxes generated by LACC events, and additional transient occupancy tax revenues generated by additional room nights at local hotels. These sources would generate an estimated $61,392,404 million over 30 years. The estimated cost of implementing a City-only project to expand and restore the LACC is $315 million. The estimated revenues generated over 30 years by a City-only project would cover only a fraction of the amount needed to service bonds for such a project and would require supplemental support from the General Fund.

5. WiD the development of the New Hall and Events Center impact the City's bank of floor area rights over the convention center? A complete analysis of the floor area rights related to the LACC cannot be completed until designs for the Event Center and New Hall are provided for the CEQA analysis. These designs are needed to determine the exact square footage of each facility and their locations on the property. Once this information is available, a complete analysis for floor area rights can be conducted. Current analysis indicates that approximately four million square feet of floor area rights are unused at both the West Hall and South Hall properties of the LACC. This unused floor area is the underlying resource that is available for use in the City's Transfer of Floor Area Ratio (TFAR) program. The City is able to sell the available floor area to other developments in the Downtown area, creating economic value from the unused floor area at LACC. It is anticipated that designs for the Event Center and New Hall would result in the use of floor area that is currently not used. This would reduce the amount of floor area available in the TFAR program. It should be noted, however, that any ground lease for the West Hall property would be based on fair market value for the property. This fair market value would include the value of any floor area rights available for use, so the City would receive compensation for such use.

Page 3

6. Will the convention center be able to use some of the signage area to advertise upcoming conventions? Yes. The signage program with AEG that was adopted by the City Council in 2008 included the right of the City to advertise upcoming LACC events on the AEG signage. The signage plan proposed for the Project would include the same requirement that LACC events could be advertised on the signage installed. Attachment C provides an excerpt of language from the 2008 Signage Agreement that concerns the display ofLACC events on this signage.

7. CSL has concluded that Los Angeles is at a competitive disadvantage for Citywide conventions because the City does not have enough contiguous exhibition space and hotel rooms within a half-mile. If this proposed Project is approved the amount of contiguous space at the convention center will improve but there will still only be 1,700 hotel rooms available. LA Inc. has repeatedly stated the City needs at least 5,000 hotel rooms within walking distance to be competitive. What steps is the City taking to increase the number of hotel rooms? LA Inc. the Los Angeles Convention and Visitors Bureau (LA Inc.) reports that 5,000 peak night hotel rooms are needed to improve the competitive status of the LACC with regard to large conventions. This means that 5,000 hotel rooms are needed within a half mile of the LACC on the peak night of a convention. Since a convention does not book 100% of the hotel rooms available in any given hotel, more than 5,000 rooms are actually needed in the room inventory to meet demand. The City has a room block agreement with the J.W. Marriott hotel that ensures that up to 70% of the rooms in that hotel are available for a convention. Using that 70% availability rate as a guide, approximately 7,000 to 7,500 hotel rooms would be needed within a half mile of the LACC to provide 5,000 hotel rooms on the peak night of a convention. The City has not implemented a comprehensive incentive program to increase the hotel rooms within walking distance of the LACC. The City has considered specific proposals on a case-bycase basis that have been initiated by requests from developers for financial support. But such a process is reliant on interest from the market in seeking City support, rather than an active effort by the City to attract new hotel development. The Community Redevelopment Agency (Agency) includes the area to the south and east of LACC in the City Center Project Area. The plan for this area supports development of hotels and it is possible that the suite of redevelopment programs and resources could be available to support hotel development. The Agency reports that hotel developers have expressed an interest in the area, but that the current market, economy, and finance tools are conducive to the development of boutique hotels and not the large headquarters-type hotels needed to significantly boost the number of hotel rooms in the immediate vicinity. Recent headquarters hotel development in Los Angeles, Dallas, Phoenix, Indianapolis, and Washington D.C. have required Page 4

various forms of public support, inclusive in some cases ofthe issuance of tax exempt bonds supported by hotel revenues. Redevelopment resources that could be available in Los Angeles for hotel development include tax increment financing, assistance for land acquisition and preparation, infrastructure development, development of parking capacity, and the creation of pedestrian- friendly corridors, One hotel development proposal has been announced. The Olympic North hotel development would result in the construction of two hotels in a single building, adding 377 hotel rooms to the area. Motion (Perry-Reyes, CF 11-0966) was introduced in June 2011 instructing the CLA to evaluate resources available to support development of this hotel development. A general, Citywide hotel development incentive program may be a more effective means to encourage development of hotels in the area. 8. The metro stop at Pieo Boulevard is going to have increased usage. What steps are being taken to make sure the platform area has enough room to accommodate transit users? AEO reports that analysis of increased demand in use of the Blue Line Station at Pico Boulevard will be included in the transportation study to be prepared for the Environmental Impact Rep011 (EIR) on the Project. That transportation study has not been completed, so no recommendations are available yet to address future needs ofthe Blue Line Station at Pico Boulevard.

9. The MOD recommends creation of a macro-booking committee to coordinate events campus wide. Has it been contemplated who will chair this committee and who will retain the master calendar? LACC and AEG currently meet to establish the existing campus wide calendar and coordinate parking, traffic flow, logistics, conveyance and alignment of event specific information and resolution of potential event related conflicts/challenges ..The Macro-Booking Committee would be expanded to include LA Inc. The LACC has offered to take the lead in coordinating activities of the Committee, though rotating leadership is an option. It is expected that the Macro-Booking Committee would continue the current operational perspective and integrate the macro booking policy, when established and applicable, within its functions. LACC would continue to create and retain the master campus calendar and chair the committee. The committee would include both operational and sales representatives of the member organizations.

10. If developed and successfully operated the Event Center is estimated to attract 1.3 million attendees a year. When performing the economic analysis of this proposed Project indirect revenues like increased transient occupancy tax and sales tax were not taken into consideration. Would it be possible to have an analysis of indirect revenues?

Page 5

Exhibit B in the CSL report provided as Attachment D to the City Team report of July 25, 2011, provides estimates of revenues that could be generated by the proposed Project. One table provides a breakdown of all indirect revenues that they estimate would be generated by the Project. That data is summarized below in Table 1.
Table 1 Estimated

Indirect Revenues from the Proposed Project Revenue Source Nominal Amount $26,106,228 $6,884,882 $61,392,404 $38,961,890 $133,345,404

Sales Taxes -- Offsite Business Taxes -- Offsite

LAce Incremental Taxes

Source: Convention, Sports & Leisure, International, "Fiscal Analysis of Proposed Downtown Stadium and Convention Projects", July 22,2011.

Attachments: A: B: C: Jobs Supported by Industry Response to Quentin Fleming 2008 Signage Agreement Between the City and AEG, Excerpt: language concerning display of LACC events on signage

Page 6

Attachment A Jobs Supported by Industry

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Attachment B
Response to Quentin Fleming
Prepared by CSL

C5M
~ July 29, 2011 Mr. Gerry Miller Chief Legislative Analyst City of Los Angeles 200 North Main Street City Hall East, is" Floor Los Angeles, CA 90012 Dear Mr. Miller: Per Council Member Rosendahl's request, I have provided a response to the letter provided by Quentin Fleming on July 28, 2011 regarding our economic analysis of the AEG proposal. We have addressed each of his

CONV ENTIONS SPORTS~

1. Fleming Statement

- the assertion in the executive summary has been clearly

and consistently proven wrong by research. CSL Response - there is a body of academic research that always denies the validity of any economic impact study related to a sports venue such as the proposed event center. However, each venue and study has its own unique set of circumstances. Specifically, our analysis quantifies the impact on the City of Los Angeles and only counts those revenue streams that are NEW to the City and does not include DISPLACEDrevenue streams. We have made the assumption that not all of the fans attending NFL games come directly from the City of Los Angeles and as such those are new dollars impacting the City economy. It is doubtful those same academic economists would argue that the development of Staples has had no impact on the City of Los Angeles. The development of Staples was a direct impetus for upwards of $2.0 billion of additional development in downtown area. That development, the operations of Staples Center and the presence of the Lakers, Clippers, and Kings also has a positive and direct impact on the City.

Mr. Gerry Miller July 29, 2011

12

2.

Fleming

Statement

- the assertion of new taxes to the City of $146 million

is

wrong due to the substitution

effect.

by CSLaccounts for the substitution effect. As it relates to the new tax revenues, approximately 40% of those revenues are directly related to the possessory interest tax payments received by the City from AEG for the operations of the parking garages and event center. of dollars that the City would have received. If this project does not happen, the City will receive none of that money. Thus there is no substitution The tax projections also include new business license tax revenue from the stadium and team operations. Like the possessory interest tax, if a team does not relocate to Los Angeles and a stadium is not built, there is zero business license tax revenue generated. This revenue is considered adjustment net new to the City. The projections of the TOT tax include an to account for the possibility that a portion of the new tax will be receive rebates of those taxes. developments The projections ancillary for any new hotel or additional

CSL Response - The analysis undertaken

generated at hotels that currently also do not account development

as a result of the project.

raises serious

methodological
CSL Response -

concerns. The reliance of AEG cost projections has no impact on the

methodology of our analysis. Based on the current MOU, AEG is responsible for all cost overruns. The impact of additional costs would only reduce AEG's internal rate of return and would have no direct impact on any of the City impact numbers we have generated.
4. Fleming Statement - The issue of revenue sharing is essentially irrelevant as AEG

will likely own the NFL team or a portion of the team.

evaluate the financial impacts to both the team and stadium entity.

Even if AEG

owned both entities it does not significantly impact the IRR as they would be required to pay a major relocation fee, purchase the team and pay for the stadium. Those total costs could easily exceed $2.0 billion and could reach $3.0 billion.

Mr. Gerry Miller July 29, 2011 Page

13

5.

Fleming Statement - The conclusion of new economic impacts for the City is a serious error.

CSLResponse- Addressed in #1- Same issue. 6. Fleming Statement Stadium involvement - The data regarding is wrong Public and Private Contributions to

development

based on the lack of accounting

for public

in the operations of the stadiums. rights, or responsibilities related to is

CSL Response - The City has no obligations, stadium operations and management. rights to it (except in default). irrelevant.

The City won't own the stadium nor have any regarding annual operations

Thus the statement

The purpose of chart and the analysis was to evaluate the level of public and private participation in the development and construction of the stadium. There are a few stadiums in which the public does have some level of responsibility during the ongoing operations. This is also further complicated by rental payments by the team and which entity retains other 3rd party revenues. It is likely that this analysis would increase the public percentage of life-time costs of a few of these venues which further highlight the advantages of the proposed MOU between the City and AEG as the City has no ongoing responsibilities or costs related to the stadium. 7. Fleming Statement - The IRR calculation is wrong as it does not include the

Farmers Field naming rights revenue. CSLResponse - The financial model developed by CSLincludes ALL revenue streams that would revenue. accrue to the stadium entity including naming and all sponsorship

We sincerely appreciate the opportunity to assist you with this project, and would be pleased to be of further assistance in the interpretation and application of our findings or any other issues raised by other Council members or the public. Sincerely,

Bill Rhoda

Attachment C 2008 Signage Agreement Between the City and AEG Excerpt: language concerning display of LAce events on signage
Prepared by City staff

2008 Signage Agreement Between the City and AEG Excerpt: Language concerning display of LACC events on signage

Electronic Displays. Subject to the terms and conditions set forth in Section 2 of this Agreement, electronic display boards and message reader boards (the "Electronic Displays") in select locations around the Convention Center as set forth in the Signage Plan. Such Electronic Displays will be used for (i) the display of event announcements, informational messages and promotional displays on behalf of exhibitors, promoters, and participants in events at the Convention Center and LA Live ("Event Use"), which Event Use shall include (a) announcing and publicizing Convention Center, Staples Center and LA Live events, (b) selling promotional opportunities on such Electronic Displays to exhibitors and participants in such events, and (ii) the sale of commercial advertising by LandCo. The Electronic Displays shall be used approximately twenty-five percent (25%) for Event Use, approximately twenty-five percent (25%) for display of advertising for LandCo's District Sponsors (as hereinafter defined), and approximately fifty percent (50%) for Commercial Sales by LandCo. The Event Use shall be allocated among the Convention Center, Staples Center, and LA Live based on the proportion of actual events OCCUlTingt the respective facilities; provided, however, that during Convention a Center events, the Event Use will be allocated principally to such Convention Center events. For purposes of this Agreement, "LandCo District Sponsor" shall mean one (1) of up to ten (10) sponsors to whom LandCo has granted sponsorship and exclusivity rights throughout the District. Subject to the terms ofthis Agreement, including but not limited to, the City's rights to provide Event Use signage to Convention Center exhibitors, LandCo shall control and operate the Electronic Displays. Event Use Signage. The City shall have the right to provide promotional displays to exhibitors, promoters, and participants in events at the Convention Center and LA Live. Restrictions on Event Use Sales .. Any promotional opportunities sold by the Parties for Event Use shall be sold to exhibitors or other bona fide participants in events held at the Convention Center, LA Live or Staples Center and shall not be sold to advertisers (i) seeking to purchase advertisements for the purpose of undermining a competitor who is a LandCo District Sponsor, or (ii) seeking to otherwise engage in so-called "ambush marketing" against any LandCo District Sponsor, as reasonably determined by LandCo. Additionally, Fixed Signs sold to event exhibitors or participants for Event Use shall only be displayed during the period beginning no more than five (5) days prior to the applicable event and ending no more than five (5) days following conclusion of the applicable event. Use afFixed Signs for promotion ofthe applicable event itself by the Parties is not subject to this time limitation. Advertising Conflicts. The Parties shall cooperate in minimizing conflicts between third party advertisers and Convention Center exhibitors. Without limiting the foregoing, if one or more signs displayed by LandCo on or around the entrance to the West Hall or South Hall of the Convention Center advertise a direct competitor of a major exhibitor in a proposed Convention Center event and such conflict is reasonably likely to materially impair the City's ability to book that event as determined by the City in its sale discretion, the City shall have the right to require LandCo to cover such sign(s) for the duration ofthe proposed event; provided however, that in no event shall Landflo be required to remove or cover any particular advertiser's signs for an aggregate of more than ten (10) days in any calendar year.